Operation Choke Point: Consumer Protection or Troubling Government Overreach?

The recent House Financial Services Committee hearing regarding the Department of Justice’s “Operation Choke Point” made the shady overreaches of government look even more commonplace. The ominously named DOJ program has been billed as an attempt to slow fraudulent businesses from taking advantage of consumers.

This goal was repeated by many of the Democrats attending the hearing, who attempted to shed mostly a positive light on the DOJ’s motives. However, testimony from the witnesses assembled suggested something to the contrary. The witness panel was comprised of the DOJ’s Assistant Attorney General Stuart Delery, the Federal Reserve’s Scott Alvarez, the FDIC’s Richard Osterman, and the Comptroller of Currency’s Daniel Stipano. The witnesses stated repeatedly that the program only existed to target businesses acting unlawfully, and that banks facilitating legal enterprises had nothing to fear.

It certainly appears that things are not quite that simple. Representative Patrick McHenry (R-NC) led the hearing, and called attention to a list that the DOJ sent around to banks designating “high risk businesses” that were likely to incur subpoenas and investigations. The problem with the list, however, is that it doesn’t just cover specific businesses—it lists whole industries. The types of industries listed are varied, including strictly illegal operations like Ponzi and credit card schemes right next to entirely legal enterprises like tobacco sales.

Rep. McHenry tore into this list, calling it a “government hit list” and a tool for the Obama administration to intimidate banks into not interacting with legal businesses it dislikes. This allegation was reinforced throughout the hearing. Besides very recently informing banks that they were not being asked to stop working with lawful, “high risk” businesses, the witnesses failed to demonstrate that they had done anything to discourage the kind of intimidation the DOJ is being accused of using.

The most fiery and cutting remarks came from Representative Sean Duffy (R-WI), who asked  Delery to state if the DOJ has actually pressed charges directly against the supposedly fraudulent businesses in question, or obtained a single guilty adjudication. Although Delery could name a few banks that had been fined, he could not answer Rep. Duffy with any fraudulent businesses that had been tried and found guilty. Rep. Duffy pointed out the danger of an overzealous government: “We have a federal government that’s out of control, and we have bureaucrats who think they can get a swift idea and impose the heavy hand of government on legitimate businesses that have no adjudication of fraud.”

The fact that the Department of Justice was at such a loss in its defense of Operation Choke Point is extremely concerning. The program is easy to exploit, and even worse, people across the country are employed by the industries the DOJ has deemed “high risk,” and these citizens have faced a withdrawal of financial services by their bank after regulators came knocking. Representative Andy Barr (R-KY) shared the story of a family land lender to the coal industry having their loan no longer facilitated by their bank. Representatives Ann Wagner (R-MO) and Stephen Fincher (R-TN) also attested to job losses in their states due to Choke Point’s crackdown on low-interest, short-term pay day loans.

The defenses offered for Operation Choke Point were weak at best, citing a few cases of levying fines against banks, but no guilty verdicts were described. Though a consumer protection in theory, practice shows that the program is little more than a means of politicized persecution of any business the Executive branch views unfavorably. While its drawbacks are being felt across entire industries, Choke Point’s benefits remain to be seen. If officials from the Federal Reserve and the Department of Justice can’t formulate rejections of the criticisms provided and demonstrate real consumer benefits, it’s doubtful that this discriminatory and damaging program has any real use.

You can read more about NTU’s take on the unfolding Operation Choke Point scandal here.